General Motors has announced the sale of Vauxhall to French car manufacturer PSA Group, but will retain responsibility for the company’s funded and unfunded UK pension obligations, sparking concerns over the security of members' benefits.
Experts said the agreement demonstrated the potential for UK pensions to break deals, and expressed concern for the fate of the schemes.
Work and Pensions Committee chair Frank Field wrote to Lesley Titcomb, chief executive of the Pensions Regulator, to ask for details of the regulator's involvement with the sale and ongoing management of the Vauxhall Motors Limited Pension Plan, which is £840m in deficit.
Field wrote similar letters to the chair of trustees of the scheme, and to PSA president Carlos Tavares. The Labour MP has also demanded further details on the pre-pack administration of Bernard Matthews in a separate act of scrutiny.
The €2.2bn (£1.9bn) transaction between GM and PSA includes Vauxhall and its operations as Opel in Europe, alongside General Motors Financial.
It’s obviously a very dramatic way to close your DB scheme
Mark Smith, Taylor Wessing
GM will transfer Opel/Vauxhall’s German plan for active members and select smaller schemes to PSA, which owns the Peugeot and Citroën brands, paying the French conglomerate €3bn for the full settlement of those obligations.
For staff in the UK, the US giant currently operates the GM Retirees Pension Plan, the IBC Vehicles Pension Plan, the Millbrook Pension Plan, the Vauxhall and Associated Companies Pension Fund and the Vauxhall Motors Limited Pension Plan.
Did pensions threaten deal?
Speculation has been rife that the transfer of the schemes might have scuppered the deal, which GM said will boost its performance and provide $2bn (£1.6bn) for share buybacks.
“It just shows once again that pensions are a dealbreaker,” said Richard Farr, managing director at covenant specialists Lincoln Pensions.
Explaining the decision to retain responsibility for the schemes, a GM spokesperson said: “We view that as a historical obligation for the company. This was an asset-only sale and so we intend to keep the responsibility for those pensions.”
Funding measures are essential
Concerns were also raised over the funding of the UK schemes, which will have no financially significant sponsor in Britain once the transaction is completed.
GM’s full-year earnings for 2016 detailed a non-US pensions deficit of $11.1bn. GM declined to confirm figures.
Experts agreed that the increased distance between the scheme and its ultimate source of funding could complicate the regulator’s efforts to safeguard the scheme’s funding, although they agreed that the current climate around DB funding could spur it into decisive action if needed.
"There have been questions about the extent to which the regulator’s moral hazard powers are exercisable overseas,” said Matthew Swynnerton, partner at law firm DLA Piper, but added that successful outcomes involving Nortel and Lehman Brothers had lessened these concerns.
A spokesperson for the regulator confirmed it had already begun engagement with both the sponsor and the trustees of GM’s UK schemes, but declined to give details.
“In situations where significant change is expected for the position of the sponsoring employer to a scheme, including where the business may be sold, we would expect the trustees to be actively engaged to understand the potential for these changes to impact on the scheme and to ensure that the scheme’s position is appropriately recognised,” the spokesperson added.
Trustees under pressure
Industry figures also stressed the role of the trustees in ensuring GM’s plans for business restructuring do not pay out shareholders at the expense of the schemes.
“The trustees need to make sure that the employer that is left behind with a guarantee... is financially durable and robust, and can weather any storm over the next 20 years,” said Farr.
Measures to safeguard the scheme could involve contributing cash directly into the scheme, holding further funding in an escrow account, and derisking the scheme’s assets to reduce volatility, he said.
GM declined to comment on whether any arrangements had been put in place.
Unite seeks 'urgent talks' over pensions
As yet PSA has not released any details of the future pension arrangements to be provided for Vauxhall workers in the UK. As of 2013, at least two UK schemes sponsored by GM had active members.
Vauxhall pensioners in drive for RPI relink
The Vauxhall Pensioners Association has called on the company to use any surplus that could come out of its derisking process to reinstate a link between benefits and inflation.
A spokesperson for union Unite said: “The pension scheme will be something that we will be seeking urgent talks with PSA over, alongside new models for the UK plants.”
Mark Smith, partner at law firm Taylor Wessing, noted the contrast between historical corporate transactions, where continued DB provision might have been a condition of sale, and today’s environment.
“It’s obviously a very dramatic way to close your DB scheme,” he said, but added that it may be justifiable for employers “if there are commercial reasons as to why the sale makes sense”.
